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Investment – Europe heading for a record this year and next

With a number of notable recent successes behind it, Cushman & Wakefield has clearly distinguished itself this year. Just a few events of note include the sale of the iconic Royal Hamilius project in the city centre, winning a competition with Allfin for the development of the ‘Portes de l’Europe’ mixed use lot, and having been able to persuade American giant Blackstone to invest in Luxembourg. Cynthia Lheureux, Senior Investment Advisor - Capital Markets Luxembourg, gives us her view of the market.

How is the European commercial property investment market doing in Europe?

The Commercial property investment market in Europe is at a peak. For in 2015 we have already recorded more than 280 billion Euros of investment, of which no less than 40% has come from the United States. In comparison with an average of the 2010-2014 period, these 280 billion Euros of investment represent an increase of over 76%, which is a record never before achieved. And with a forecast of 320 billion Euros, thanks to an increase in the debt offering and to market opportunities, 2016 looks like being even better.

And what about Luxembourg?

Around 900 million Euros have been invested in Luxembourg since the beginning of the year. This should enable us to exceed the one billion Euros invested in 2014 and make 2015 the best year since 2007.
Of course, this investment volume has been largely influenced by the sale of Royal Hamilius to ADIA, a transaction we carried out on behalf of Codic during the first quarter of this year, and which represents 300 million Euros. Other major deals, such as the sale of Vertigo at the Cloche d’Or by Irish Life to Starwood for 120 million Euros, of the headquarters of Deutsche Bank at Kirchberg by IVG to Moor Park Capital for 72 million Euros and of the iconic Royal 20 project in the CBD by Leasinvest to a private investor for 62.5 million Euros, have ensured that 2015 is an exceptional year.

What do you believe lies behind this excellent performance?

In my eyes, there are three reasons. Firstly, there is an enormous amount of liquidity at a global level, as we have explained before.

Secondly, Luxembourg is increasingly being considered, by foreign investors, as a stable market from both economic and political points of view, with historically strong real estate fundamentals.

And finally, while prime yields (the yield obtained on a new building in the best location and under a long term lease to an AAA occupant) have reached the lowest level ever recorded and are still under pressure in Luxembourg, they still remain higher than the vast majority of European cities. It can in fact be observed that in London, Paris, Zurich and Munich, yields are at 3.25%, 3.5%, 3.7% and 3.85% respectively, while 4.5% can be obtained in Luxembourg for a prime asset, as was the case for the sale of Royal 20, which will be delivered in 2016 and occupied for a fixed 10 year period by the China Merchants Bank.

Who are these investors who are looking at Luxembourg?

If we look at capital invested between 2010 and 2013, we see that 85% of investors are from Luxembourg or Belgium. These were often family offices or private investors, whether syndicated or not. The remaining 15% was split between the Germans and the French.

But since 2014, local and Belgian capital now only represents a third of invested volumes, and we have seen a massive return of German institutional funds, French insurance companies, and also the arrival of many American funds and of the largest sovereign fund in the world, from the Middle East.
So it is that while Union Investment and Axa have been constantly increasing their presence, Blackstone, Starwood and Moor Park Capital have made a highly visible entry, and ADIA has acquired the project which will change the face of the city centre.

In general terms, what sort of goods are they looking for?

First of all, Luxembourg is above all an office market. This segment represents 68% of investments since 2010, against 21% in retail, where opportunities are rare.

And finally, we can speak of interest which comes primarily from investors known as ‘core’, which means looking for recent assets, with quality occupants having signed long term leases in a geographical sector with sustained demand and low vacancy. This is why we observe that the majority of investments since 2014 have involved core buildings.

Nevertheless, due to a lack of product, it can be seen that investors are ready to take on more risk and to mange their assets more actively by accepting a more decentralized location, a degree of rental vacancy or by putting their stakes on assets into which it is necessary to invest CapEx.

It should be underlined that these ‘core+’ type investors are showing more and more interest in Luxembourg, as has been demonstrated by Blackstone, Moor Park Capital and Starwood.

Seeking large investment volumes is a trend which is making an appearance again. Between 2010 and 2013, just 11% of transactions involved buildings of over 50 million Euros. But since 2014, these represent no less than 22%. In fact, the behaviour of investors is more cautious than before in the selection of their assets, but once they confirm their interest, they are looking to invest a maximum of liquidity, and to minimise the time taken for the acquisition process.

How are you positioned on this market?

Over the past twelve months, Cushman & Wakefield has carried out some major transactions. We convinced Blackstone of the attraction of the Luxembourg market, and advised them in their first acquisition here, of the Dome in the station district.

At the beginning of this year, we also advised developer Codic in the sale of the iconic Royal Hamilius project in the city centre.

More recently, Cushman & Wakefield in collaboration with developer Allfin Group and architectural bureau Arquitectonica et M3 Architectes, have officially been declared the winners of a competition for the creation of a mixed real estate complex which will include a 21 storey residential tower, 6,800 m² of offices and 6,500 m² of retailing. Located on the Avenue Kennedy between the European Union Law Courts and the Philharmonia, the ‘Porte de l’Europe’ mixed lot will redesign the entrance to Kirchberg.